By Harumi Taguchi, Principal Economist, IHS Global Insight
Key Points:
Ÿ Japan’s trade surplus for August increased by 20.1% from the previous month, to JPY408 billion (USD4 billion) on a seasonally adjusted basis, but the trade balance turned to a deficit of JPY19 billion on a non-seasonally adjusted basis.
Ÿ While the month-on-month (m/m) improvement in the trade balance was attributed to a 1.3% decline in imports, the trade deficit on a non-seasonally adjusted basis reflected weaker exports to the US (-14.5% year on year (y/y)) and the downside from the yen strengthening.
Ÿ The contraction in exports softened to 9.6% y/y, thanks largely to an increase in export volumes (0.9% y/y), which partially offset a 10.4% drop in export prices. In volume, increases in exports to the EU and Asia were partially offset by a 5.6% drop in exports to the US.
Ÿ The contraction in imports also narrowed to 17.3% y/y, thanks to a larger increase in import volumes (3.8%% y/y), partially offsetting continued weakness in import prices (-20.3% y/y). While weak prices for oil and liquid natural gas remain the major factor behind the contraction in imports, the yen strengthening weighed on a wide range of goods.
IHS Global Insight Views:
The uptick in trade volumes suggests that external demand and production have bottomed, and this could help to maintain Japan’s trade surplus in trend. Even so, any improvement will probably be limited unless external demand strengthens. If the yen continues to strengthen, it will weigh on export prices over the near term, and later on volumes as well.
Despite the stronger yen, import volumes will remain sluggish as weak domestic demand continues. Yet, somewhat improved prices for resources and easing y/y effects from weak oil prices will gradually lift imports. That said, the contraction in imports is likely to continue over the near term.